INVESTING IN INDIA - cagds.in · Investing in India – Entry Routes Automatic Route Prior...
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INVESTING IN INDIA
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FDI Policy Framework
Foreign Direct Investment
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Investing in India – Entry Routes
Automatic Route Prior Permission
(FIPB)
Investing in India
General rule
No prior permission
required Only information to the
Reserve Bank of India
within 30 days of inflow/
Issue of shares
By exception
Prior Government
Approval needed
Decision generally
Within 4-6 weeks
Investing in India – Entry Routes
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Manufacturing
• 100% FDI permitted in all activities under automatic route except:
– Cigar and cigarettes of tobacco - FIPB
– Products reserved for Small Scale Sector • FDI less than 26% under automatic route
• FDI beyond 26% - FIPB subject to export obligation
– Defence products • FDI upto 26% - FIPB subject to licensing of Arms and
Ammunitions
FDI Policy for Industry Sector… Fully
permitted FDI Policy for Industry Sector… Fully permitted
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FDI Policy for Industry Sector…. Fully permitted FDI Policy for Industry Sector…. Fully permitted
Mining • Coal – FDI upto 100% as per Coal Mines (Nationalization) Act 1977
• Diamond, Gold, Silver , Minerals – upto 100% under automatic route as MMRD Act
• Atomic minerals – upto 74% in JV with PSUs – FIPB
Electricity • FDI upto 100% under automatic route in Generation, Transmission,
Distribution and Power Trading as per Electricity Act 2003
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FDI Policy for Service Sector-Infrastructure…. Largely
Permitted FDI Policy for Service Sector-Infrastructure…. Largely Permitted
• Roads & Highways- 100% FDI permitted under automatic route
• Airports – Greenfield Projects- 100% FDI permitted under automatic route
– Existing Airports- 100% FDI, beyond 74% requires FIPB approval
– Air Transport- up to 49% FDI under automatic route,100 % NRI
• Telecom – Basic and cellular, Unified Access Services, National/International Long
Distance etc.- 74% (Including FDI, FII, NRI, beyond 49% under FIPB route
– ISP without gateway, Infrastructure provider providing dark fibre, right of way, duct space, tower (Category-I), Electronic mail and voice mail- 100%, beyond 49% requires FIPB approval
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FDI Policy for Service Sector-Infrastructure…. Largely
Permitted FDI Policy for Service Sector-Infrastructure…. Largely Permitted
• Shipping and Ports -100% FDI under automatic route
• Railways- Rolling stocks open for FDI, Railway transport reserved for Public sector.
• Industrial Parks- 100% FDI under automatic route
• Hospitals- 100% FDI under automatic route
• Hotels & Tourism (include restaurants, beach resorts, and other tourist complexes providing accommodation and/or catering and food facilities to tourists. Tourism related industry include travel agencies, tour operating agencies and tourist transport operating agencies)- 100% FDI under automatic route
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FDI Policy for Service Sector- Infrastructure…. Fully Permitted FDI Policy for Service Sector- Infrastructure…. Fully
Permitted
• FDI- 100% permitted unjder automatic route
• Objectives- Development of infrastructure facilities, Investment Promotion, Promotion of exports of goods and services, Generation of employment opportunities etc.
• Establishment Procedure- SEZ can be established either by the Central Government, State Government or any other entity.
• Requirements- Minimum area requirements for different class of SEZs, every SEZ is divided into a processing area( for units) and the non-processing area (for supporting infrastructure).
• Simplified Procedure- Single window clearance for setting up SEZ as well as units within SEZ
SPECIAL ECONOMIC ZONES- Fuelling India’s Economic Growth
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SEZ – Current Status SEZ – Current Status
• 396 SEZs formally approved: – 19 Multi Product SEZs;
– 6 Port based Multi Product SEZs;
– 132 Sector Specific SEZs;
– 249 EH/IT/ITES SEZs
• 169 valid in-principle approvals;
• 151 SEZs notified; over 45 SEZs functional
• 2006-07 Exports at US$8.3 billion (Rs. 34,787 Crores)
• Growth in exports 52% over 2005-06
• Projected exports–2007-08– US$15 billion(Rs.67,088 crores) (200% increase in two years)
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Incentives for SEZ Developers Incentives for SEZ Developers
• Exemption from customs/excise duties for development of SEZs approved by the BOA.
• Income Tax exemption on export income for a block of 10 years in 15 years under Section 80-IAB of the Income Tax Act.
• Exemption from dividend distribution tax under Section 115O of the Income Tax Act.
• Exemption from Central Sales Tax (CST).
• Exemption from Service Tax
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Incentives and facilities for the units in SEZ Incentives and facilities for the units in SEZ
• Duty free import/domestic procurement of goods for development, operation and maintenance of SEZ units
• 100% Income Tax exemption on export income for SEZ units under Section 10AA of the Income Tax Act for first 5 years, 50% for next 5 years thereafter and 50% of the ploughed back export profit for next 5 years.
• External commercial borrowing by SEZ units upto US $ 500 million in a year without any maturity restriction through recognized banking channels.
• Exemption from Central Sales Tax.
• Exemption from Service Tax.
• Exemption from State sales tax and other levies as extended by the respective State Governments.
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Real Estate- Policy and conditions Real Estate- Policy and conditions
• FDI is not permitted in the business of buying and selling of
property
• FDI up to 100% under the automatic route in townships, housing,
built-up infrastructure and construction-development projects
including housing, commercial premises, hotels, resorts,
hospitals, educational institutions, recreational facilities, city
and regional level infrastructure) subject to following conditions:
– Minimum area to be developed under each project would be 10 hectares
for development of serviced housing plots and 50,000 sq.mts in case of
construction-development projects.
– Minimum capitalization of US$10 million for wholly owned subsidiaries
and US$ 5 million for joint ventures with Indian partners.
– Original investment cannot be repatriated before a period of three years
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Real Estate in India Real Estate in India
• Second largest employer next only to agriculture
• US $ 12 billion industry
• Growing at about 30% per annum
• Housing sector contributes to 5%of the country’s GDP
• FDI Inflows: (from 1991 to June 2007)
– Housing & Real Estate:US$1123 million
– Construction Activities (Including Roads & Highways):US$1875 million
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Indian Real Estate- Catalyst for Growth Indian Real Estate- Catalyst for Growth
• With Indian economy growing strongly, requirements of housing,
commercial and industrial infrastructure bound to rise.
• More than 367 Million Sq. Ft. of additional office space needed by
2012-13 ( Estimated by Ernst & young)
• 4.7 million housing units would have to be completed by 2030 (
Estimated by Deutsche Bank)
• Asian Development Bank estimates requirements of 10 million units
by 2030
• Indian Ministry of Tourism forecasted requirements of 2.9 and 6.6
Million hotel rooms to meet the tourism and business by 2010 and
2020.
• Fast growing Medical tourism will become US$2 billion industry by
2012 and will require huge investment in Health Services sector.
• Booming retail trade sector needs 13 Millionsq. Ft. of space by 2008
end in top eight large cities in India
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Real Estate Development- Incentives Real Estate Development- Incentives
Tax Holidays;
• Exemption from tax on 100% for profits derived by an undertaking
engaged in developing/operating/maintaining an Industrial Park.
• Exemption from tax on 100% for profits derived by an undertaking
engaged in developing and building housing projects.
• Exemption from tax on 100% for profits derived by an undertaking
engaged Development, operation and maintenance of an SEZ.
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Major Foreign Developers in India Major Foreign Developers in India
INVESTOR COUNTRY PROJECT LOCATION
Emmar Group Dubai Hyderabad
Kontur Bintang/Westport Malaysia Gurgaon
Singapore Housing Board Singapore Hyderabad/Chennai
Keppel Land Singapore Banglore
Salim Group Indonesia Kolkata
Lee Kim Tah holdings Singapore Chennai/Mumbai
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FDI Policy for Service Sector-Other than infrastructure…. Largely
permitted
FDI Policy for Service Sector-Other than infrastructure…. Largely
permitted
• FM Broadcasting (20%) - FIPB
• Uplinking News and CATV Channel - FIPB
• Print Media – News Papers & Periodicals - FIPB
• Insurance - Automatic
Upto 26%
Upto 49% • Broadcasting - Cable Network, DTH,
Setting up hardware - FIPB
• Stock Exchanges - FIPB
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FDI Policy for Service Sector…. Largely
permitted
FDI Policy for Service Sector…. Largely
permitted
• Private sector banks - Automatic
• Publishing scientific magazines - FIPB
• Courier services - FIPB
• NBFC - Automatic
Upto 74%
Upto 100%
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FDI Policy for Agriculture Sector…. Largely Restricted FDI Policy for Agriculture Sector…. Largely Restricted
• Floriculture, Horticulture, Development of seeds, Animal husbandry, Pisciculture, Cultivation of vegetables, Mushrooms under controlled condition allowed 100% under automatic route
• Tea plantation – 100% with FIPB and divestment of 26% in 5 years
• Other activities not allowed.
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FDI Policy …. Prohibited activities FDI Policy …. Prohibited activities
• Retail except single brand retailing allowed upto 51% with
FIPB approval
• Atomic energy
• Lottery business
• Betting and Gambling
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Foreign Direct Investment
FDI Data Analysis
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FDI Inflows….Robust Growth FDI Inflows….Robust Growth
4029 4322
19531
7722
6051
5035
6130
0
5000
10000
15000
20000
25000
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07
US $
m
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0
1000
2000
3000
4000
5000
6000
7000
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07
US
$ m
Mauritius USA Japan Netherlands Singapore
FDI – Country wise
Mauritius continues to lead
USA retains its position as 2nd most important
source country
Spurt in FDI from Singapore
4012
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0
500
1000
1500
2000
2500
3000
3500
4000
4500
5000
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07
US
$ m
Electrical Equipment (including Software) Telecommunications Transportation
Chemicals (other than Fert.) Services Sector Fuels (Power & Oil Refinery)
Construction Activities
FDI Inflows- Sector -wise
Electrical equipment including software
moves to over all 2nd position in Nov 2006.
Services sector shows spurt in growth and
the top sector attracting FDI – moving up from
the third position.
Spurt in FDI in Real Estate causes the
construction sector to the third position in Nov
2006.
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INVESTMENT AGREEMENTS INVESTMENT AGREEMENTS
• Important features of Bilateral Investment Promotion
Agreement (BIPA) :
– National Treatment for foreign investment;
– MFN treatment for foreign investment and investors;
– Free repatriation/ transfer of returns on investment;
– Recourse to domestic disputes resolution and international
arbitration for investor-State and State-State disputes;
– Nationalization / expropriation only in public interest on a non-
discriminatory basis and against compensation etc.
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INVESTMENT AGREEMENTS INVESTMENT AGREEMENTS
• Government of India have, so far, signed BIPAs with 68 countries out of
which 50 BIPAs have already come into force.
• To name a few; Australia, Austria, Belgium,Denmark, France, Germany,
Israel, Kuwait, Malaysia, Mauritius, Netherlands, S. Korea, Switzerland,
Thailand, UK and like.
• Countries with whom BIPA has been signed and will come in force
shortly: Turkey, S. Arabia, Bahrain, S. Arabia,China, Mexico etc.
• Countries with whom negotiations are on: Brazil,Colombia, Japan,
Canada etc.
• India has signed Comprehensive Economic Co-operation Agreement
(CECA) with Singapore only, which is an integrated package comprising
a free trade agreement, a bilateral agreement on investment promotion
and protection, an improved double taxation avoidance agreement and
a work programme for cooperation in healthcare, education, media,
tourism, customs, e-commerce, intellectual property, and science and
technology.
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Portfolio Investment
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Investing in India Investing in India
• Main features of the policy on investment by FII are:
– FIIs are required to allocate their investment between equity and debt
instruments in the ratio of 70:30.
– It is also possible for an FII to declare itself a 100% debt FII
– FIIs can buy/ sill securities an stock Exchanges.
– No individual FII/ Sib-account can acquire more than 10% of the paid up
capital of an Indian company
– FII and their sub-accounts cannot acquire more than 24% ceiling to the
Sectoral Cap / Statutory Ceiling as applicable by passing a resolution by its
Board of Directors, followed by passing a special Resolution to that effect
by its General Body.
– More that 1100 registered FIIs with more than 3800 sub accounts
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India’s Equity Capital Markets India’s Equity Capital Markets
• Market Cap of both BSE and NSE crossed US$ 1trillion in July 2007
• India first BRIC country with Market Cap of above GDP and joins select group of countries
• The Bombay Stock Exchange is one of the oldest stock exchanges in the world and has more than 5,000
listed companies.
• The National Stock Exchange of India Limited (NSE) is third largest in terms of volume of trade.
• Electronic screen-based trading systems. Early adopters of satellite communication and T+2 Rolling
Settlement.
Market cap
of major
countries
May 2007
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Debt and Foreign Exchange Debt and Foreign Exchange
• Bond market US$340 bn (95% domestic, over 75% sovereign/ municipal dept). Well
established and on of the largest bond market in Asia (NSE, RBI & Prime database).
• Tenor of instruments range from overnight to 20 years by Government, Corporates
and Financial Institutions.
• Strong and liquid derivatives market. Volume in OTC derivatives market are US$1.4
bn.
• Booming growth expected with securitization market and infrastructure financing
poised for takeoff.
• Country foreign currency debt rating upgraded by S&P in 2007 to BBB-/A-3 with a
stable outlook. Moody’s and Fitch have upgraded to investment grade in 2004 and
2006.
• Foreign exchange management practices “among the best” (IMF).
• INR partially convertible on capital account, subject to progressive relaxation.
• Large demand for OTC derivatives with corporates using sophisticated swap and
option structures in local and foreign currency.
• Highly sophisticated and broad based interest rates derivatives market (World
Bank/RBI)
DEBT
Forex
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Investing in India Investing in India
• A foreign company to set up business operations in India has the
following options:
– Incorporation of company (governed by the Companies Act, 1956)
– Liaison office/ Representative office
– Project office
– Branch office
– Branch office on “stand-alone basis” in special economic zone